Tuesday 21 August 2012 03.04 EDT
First published on Monday 3 September 2012 09.35 EDT

5.04pm BST

Right. That's the end of another day of rolling eurozone news.

Thanks for joining us and we hope you'll be here again tomorrow when we have the following:

Greece's bid to win a two-year extension to its austerity programme will begin in earnest as Jean-Claude Juncker, head of the eurogroup of euro finance ministers, goes to Athens for talks with the Greek PM.

Antonis Samaras will attempt to persuade Juncker that Greece should be given more time to bring its deficit under control, helping it to return to growth.

Samaras hopes to have Juncker onside before he visits Berlin on Friday, where German politicians have already voiced opposition to giving Greece any further help, however one of Merkel's allies, Norbert Barthle, the Christian Democratic Union’s budget spokesman, has indicated that some concessions are possible.

Barthle said:

Small concessions are feasible provided they are strictly made within the framework of the second aid programme. For instance, the interest and maturity on loans could be adjusted, as in the case of the first aid package for Greece.

4.39pm BST

Markets close up across Europe

A quiet day all round, but markets continue to edge higher. Here's today's closing prices:

FTSE 100 up 33 points at 5858

DAX up 64 points at 7098

CAC 40 up 38 points at 3519

IBEX 35 up 75 points at 7545

FTSE MIB up 359 points at 15330

4.08pm BST

Over on our Economics Blog Thorolfur Matthiasson, professor of economics at the University of Iceland, has penned an article on how Iceland has recovered from its own collapse in 2010, with some interesting lessons the eurozone could take if the worst was to happen.

He says:

The bottom line is that the government, the financial sector and the business sector collectively created a situation that leaves the financial sector with as good a result in terms of total debt collection as possible without the pain of sending most of the firms and many families into bankruptcy, unemployment and dispossession.

Thanks in good part to this tempered approach to debt write-down Iceland's economy is now growing faster than most countries in Europe, and unemployment is less than 5% (having hit 9.3% in early 2010).

Pound hits new high

Everything's going up and up on the hope for eurozone saviours at the ECB.

Now the pound is at a three-month high against the dollar at $1.5784

Updated at 4.04pm BST

3.31pm BST

German lenders call for ECB watchdog powers

The BDB banking association, which represents big private lenders like Deutsche Bank and Commerzbank has said it wants the ECB to regulate all 6,000 banks across the eurozone.

It said in an unpublished paper that "the influence of national politics in supervision would be removed".

The position is in contrast to Germany's public sector and co-operative banks, which believe central supervision is only needed for the 25 biggest banks that pose a threat to the financial system.

Updated at 4.04pm BST

3.11pm BST

Here's some reaction to the euro hitting seven-week highs.

David Song, Currency Analyst at DailyFX, said:“The relief rally in the EURUSD is likely to be short-lived as the debt crisis continues to drag on the real economy.

“Indeed, Fitch Ratings warned that the euro-area may face further credit rating downgrades as the deepening recession across the periphery countries ‘are eating away at political support for austerity and political support for the euro,’ and we are likely to see the single currency face additional headwinds over the near-term as the fundamental outlook for the region remains bleak."

3.01pm BST

Euro hits seven week high

Not content with the US markets hitting new highs, the euro is now trading at a seven-week high against the dollar, up 1% at $1.2466.

On the S&P's new four year high, Paul Kavanagh at Killik & Co points out London has some way to go:

Paul Kavanagh (@KavanaghKillik)

S&P through four year highs at 1422....FTSE100 needs to break 6300 to do the same....currently 5850

Brewin Dolphin: "huge policy shift underway"

That's how Guy Foster, head of portfolio strategy at Brewin Dolphin, sums up the recent rally in the stock markets and in peripheral bonds (see 12.17pm for the latest bond yields).

Foster writes:

Since Mario Draghi's famous announcement that the ECB will do whatever it takes to ensure the survival of the euro, events have been moving apace.

Even long-time eurozone sceptics must accept that a huge policy shift is underway and that Europe is making an uncharacteristic rendezvous with economic pragmatism.

As an update: primary market bond purchases by the European Stability Mechanism (ESM) are to be supported by secondary market purchases by the European Central Bank (ECB). The significance of the latter dwarfs the former. The ESM and its predecessors have never been more than one crisis away from insolvency (indeed a full bailout for Spain seems set to drain the ESM once more). The ECB's pockets, on the other hand, could potentially be bottomless - like those of the UK's Bank of England or US's Federal Reserve.

Furthermore, if bond market participants believe there is a functioning secondary market they will be happy to participate in the primary market - making ESM primary market purchases irrelevant.

Foster also describes any ECB scheme to target bond yields in the secondary market as a "self-fulfilling prophecy, as:

Very few participants would be sellers at a yield of 6.4% if the ECB is a buyer at 6.5%. Likewise who would not be a buyer at 6.7% yield on the same basis?

And on that note, I've got to scoot off so my colleague Simon Neville will see the blog home. Cheers all.

Updated at 2.10pm BST

1.18pm BST

Finland's president: EU must solve euro's problems

Earlier today, Finland's president tried to reverse the tide of alarming comments from the country over the eurozone. Speaking to ambassadors in Helsinki, Sauli Niinistö declared that:

Abandoning the euro is not at all a solution.

Saul Niinisto Photograph: Markku Ojala/EPA

Niinistö comments come after Finland's foreign minister hit the headlines by telling The World At One that euro finance ministers have been privately discussing the possible collapse of the single currency (Radio 4 recording here).

Niinistö admitted that the situation was tough, saying he had no easy answers, and urged political leaders to devote all possible efforts to finding a solution:

The EU should strive to do everything in their power to solve problems. Leaving the euro is not a solution at all.

Xstrata says eurocrisis is hurting

It's not just chocolate makers who are blaming the eurozone today. Ivan Glasenberg, chief executive of mining giant Xstrata, just told reporters that Europe's debt crisis is having a major impact on the commodities sector.

Glasenberg said*:

We don't see a massive slowdown of volumes into China. We've seen the downfall of commodity prices, a lot of that is on the back of uncertainty in the eurozone.

That changes from week to week. Those areas are very politically driven how the politicians sort out the eurozone, that is bearing heavily on metals and commodity prices at the moment.

Weaker commodity prices reflects fears that a disorderly break-up of the eurozone could hurl the world economy back into another downturn. Copper, for example, is trading around 15% lower than in February.

*- via my colleague Jo Moulds

Updated at 1.51pm BST

12.17pm BST

BOND YIELDS SLIDE AS OPTIMISM MOUNTS

Back in the eurozone, Spanish, Portuguese and Italian government debt continues to strengthen as traders bet on the ECB overcoming Bundesbank resistance and embarking on a new sovereign bond-buying mission.

This has pulled Bond yields down, sharply in some cases, with optimism also support by this morning's solid auction of Spanish debt (see 10.26am).

Spanish 10-year bond yield: 6.231% (down from 6.33% last night)

Italian 10-year bond yield: 5.69% (down from 5.79% last night).

Portuguese 10-year bond yield: 9.467% (down from 9.691% last night)

Portugal's 10-year bond is now yielding less than it did on the day that Lisbon requested a bailout, back in April 2011, as this graph cropped from the Reuters terminal shows:

The UK debt management agency sold £1.25bn of 17-year index-linked bonds at average real yields (after inflation) of -0.025%. That means investors would accept a very small loss on the investment, once the rise in the cost of living is taken into account.

Dr Gerard Lyons of Standard Chartered argues that the UK government should take advantage of these low yields.

SPANISH BOND AUCTIONS

The prospect of new action from the European Central Bank has helped Spain to pull off a successful bond auction.

The Spanish treasury sold €4.5bn of short-term debt, the top end of its target. Borrowing costs fell, with yields much lower than at the previous auction of this type.

Here are the details:

€3.53bn of 12-month bills: average yield 3.07% (vs 3.9%).

€0.98bn of 18-month bills: average yield 3.335% (vs 4.242%)

And here's some comment from Nick Spiro of Spiro Sovereign Strategies:

Although no news is invariably good news as far as Spain is concerned, Spanish paper continues to benefit from speculation that an ECB-backed bond-buying programme will stabilise the market. Spanish debt prices are externally driven and today's auction result attests to the improvement in sentiment towards Spain and Italy since Mr Draghi unveiled his bond-buying initiative earlier this month....Market expectations of aggressive bond-buying of Spanish and Italian debt on the part of the ECB are overdone. The watchword is conditionality. When the German government itself comes out in favour of ECB bond-buying, it should be crystal clear to investors that whatever ECB-backed bond-buying programme emerges is going to be a heavily conditional one and not the unlimited intervention that Madrid and Rome have been clamouring for.

Spiro concludes with a warning that Spanish and Italian bond markets are in a "perilous halfway house", while European leaders wrestle with the challenge of creating closer political and fiscal union.

Germany is unwilling to sanction unlimited and unconditional support in the absence of a political union while Madrid and Rome are reluctant to cede more fiscal and economic sovereignty before Germany signals its willingness to commit itself to a greater level of debt mutualisation.

Updated at 2.10pm BST

10.08am BST

The Treasury has blamed this morning's disappointing public finance data (see previous post) on a drop in production in the North Sea, and insisted that George Osborne will not change his fiscal plans.

A Treasury spokesman said the government is committed to the "credible plan" drawn up by the chancellor, adding:

Today’s numbers emphasise how risky it would be to deliberately increase borrowing.

Although, if the public finances do miss Osborne's target, that would imply a rise in borrowing for this year - as Duncan Weldon, senior policy officer at the TUC, points out in a tweet dripping with dispair:

Duncan Weldon (@DuncanWeldon)

HMT - it would be risky to "deliberately increase borrowing". But somehow it's fine to 'accidently' increase borrowing? Crazy.

Disappointing UK public finances

The latest UK borrowing data paint a bleaker than expected picture of the state of Britain's public finances.

The UK government borrowed £557m in July to balance the books, a nasty shock to economists who had expected a surplus of £2.2bn.

July is usually a strong month for tax receipts, but corporation tax income was weak, the Office for National Statistics reported.

Today's data means that UK has now borrowed £16.9bn in the current financial year, compared to £35.6bn a year ago.

Cumulative public sector net borrowing (this year in blue, last year in red).

However, if you exclude the one-off boost from taking over the Royal Mail pension fund, Britain's public sector net borrowing requirement is actually £44.9bn so far this year.

Updated at 10.09am BST

9.35am BST

The euro has climbed to its highest level against the dollar in two weeks, nudging $1.241 for the first time since 7 August.

This is another sign of market optimism that the European Central Bank will make mass purchases of Spanish and Italian debt. This story in today's Daily Telegraph, which says that Mario Draghi has enlisted the key support of Germany's Jörg Asmussen, is being credited for causing the rise.

Against the pound, the euro ticked a little higher to 78.8p.

Updated at 10.05am BST

9.09am BST

In the City ...

A quick look at the European stock markets, which are up in another morning of quiet, low-volume trading.

FTSE 100: up 34 points at 5859, + 0.6%

German DAX: up 40 points at 7074, + 0.58%

French CAC: up 23 points at 3504, + 0.68%

Italian FTSE MIB: up 212 points at 15185, + 1.4%

Spanish IBEX: up 71 points at 7542, + 0.98%.

Traders still seem to be optimistic that a) the European Central Bank will launch some kind of government bond-buying programme to help Spain and Italy, and b) other central bankers may also launch new stimulus measures soon.

Andrew Taylor of GFT Markets warns that this optimism could be punctured:

The market's faith in Europe’s political leaders and Central Banks really has to be admired considering the amount of times they have fallen short in repaying its promises to those who believe.

Updated at 10.09am BST

8.55am BST

Finland's foreign minister's admission yesterday (see Monday's blog) that politicians are whispering about the breakup of the eurozone in the corridors of EU meetings has made it to page 2 of the Sun today:

Lindt's famous chocolate ears..... Photograph: Sarah Lee for the Guardian

Its latest letter to shareholders, published this morning, Lindt said that "increasingly severe government debt levels" and "subdued economic performance" had hit Europe's chocolate market this year. Although overall pretax profits were up 12%, the eurozone market was not particularly tasty:

Consumer sentiment remained rather weak and even deteriorated further, especially in Southern Europe.

Looking forward, Lindt sees further trouble ahead in Europe:

The euro crisis and general economic background conditions seem likely to become still more challenging in the second half of the year with consumer sentiment further impaired in a number of countries.

Updated at 8.42am BST

8.09am BST

The agenda

Coming up today: Spain is holding an auction of short-term debt.

That sale will be held as the European Central Bank weighs up the possibility of a new programme to peg down the borrowing costs of weaker nations (although the Bundesbank made its opposition clear yesterday). We also have some new British economic data out this morning.

Moody's: fixing the eurozone is only half-done

...starting with news of a new report from Moody's, which warns that the task of rebalancing the eurozone economy is, at best, only halfway though.

In a new report, the ratings agency warned that it will take many more years to complete the fiscal adjustment programs and structural reforms being implemented in several Eurozone countries to correct external imbalances. As Moody's put it:

Adjustments, both in the periphery and the core, have already taken place -- in some cases, to a significant degree,...

The correction is at best only half-way complete, depending on the country in question, and could take several years.

However, it also warned that "the complete unwinding of the periphery countries' accumulated imbalances" will still take several years.

Moody's added that Greece and Ireland potentially need until 2016 to rebalance their economies – beyond the point where both countries' IMF-led fiscal reform plans are meant to have ended.

Moody's was encouraged that labour costs have fallen sharply since the crisis began in Spain (down 5.9% from their peak), Greece (-7.8) and Ireland (-13.7%). That 'improvement', though, was achieved through falling real wages and rising unemployment.

Of course, fixing the rocky finances of the eurozone's weakest players is only part of the problem.

Moody's is not suggesting that we're halfway into resolving the whole crisis (creating the necessary political and fiscal framework for a stable euro could take 20 years, according to one estimate last month).